Question: Assume the following for a project under evaluation: The project's life is 4 years. The total time zero, initial cost of $55,000. The total net

  1. Assume the following for a project under evaluation:

The project's life is 4 years.

The total time zero, initial cost of $55,000.

The total net operating cash flow each year is $15,000.

In addition to the terminal year operating cash flow, there is a nonoperating, terminal year cash flow of $8,000.

If the cost of capital for a project of this risk is 7%, what is the project's NPV? Accept or reject the project?

  1. 123,000; accept
  2. 13,000; accept
  3. -56,911; reject
  4. 1,911; accept
  5. 13,355; accept

  1. Assume the following for a project under evaluation:

The project's life is 4 years.

The total time zero, initial cost of $55,000.

The total net operating cash flow each year is $15,000.

In addition to the terminal year operating cash flow, there is a nonoperating, terminal year cash flow of $8,000.

What is the project's IRR? Accept or reject the project? Again, assume the cost of capital for a project of this risk is 7%.

  1. 7%; indifferent to accept or reject
  2. 8.4%; reject
  3. 8.4%; accept
  4. 15.75%, reject
  5. 15.75%: accept

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